Foreclosure sign in Las Vegas, Nevada, November 8, 2010 Never in history have so many middle class households been able to borrow so much against real estate at such low mortgage rates. In the last great debt bubble in the U.S. that peaked in 1929, the average household could not afford a house and had to put down 50% and get a 5-year balloon mortgage. Hence, home prices did not bubble as much as stocks and then they only fell 26% in the worst depression in U.S. history. In emerging countries never have new middle and upper class households grown...

The stupid thing is that beyond a certain point, housing moves from functional wealth to pure consumption. Nobody needs stainless appliances, granite countertops, or gift-wrapping rooms to be better wealth-producers out in the real world. We were borrowing trillions of dollars to just decorate our caves!

This flow was pretty damn good "redistribution" though, giving the middle classes spending power that they had been losing since the 2001 crash if not 1990 crash, allowing to shift their revolving debt onto their mortgaged debt.

But not everyone can borrow their way to prosperity.

The 1980s land boom in Japan was somewhat different, there wasn't so much direct cash-out shenanigans going on, though there was a real "wealth effect" of people spending more since they had more asset valuation, plus people could easily borrow against their properties to buy stocks and invest in business opportunities -- this drove both the stock market and land valuations ever upwards.

Their finance ministry stepped in and just lowered the boom on much of the flim-flam credit sector stuff that was choking them. This just killed real estate dead and worsened the resulting recession as the tide went out and everyone who had waded in since 1985 was horribly exposed.

The Fed & Obummer found an old bike pump and some PCP in the central bank's closet. The bubble has holes in it, but they are managing to get hot air back in faster than it can leak out. It's anyone's guess how long this will keep up. At this point though, I only expect another house price correction when it comes hand-in-hand with the rest of the economy eviscerating itself. Housing is basically in every single pension fund and 401k now, like it or not, and it isn't going down until the rest of the economy does too. Baby boomers and their parents make up the largest voting group, and wall street has the government's balls in a vise.

The government is working, and will continue to work to serve these groups, and these groups are very dependent on housing going up in price. Given QE3/Infinity and the declaration that Op.Twist will continue until the end of 2015, I think that it should now be clear that the government and Fed will stop at literally NOTHING to ensure that prices increase. They can keep on doing things and doing things until...they can't. At that point, they will only have ceased because something "broke" and that happens to be our entire economy.

Oh and before the resident foaming-at-the-mouth libtards in here lose their shit because I mentioned The Messiah as part of the reason that housing is a mess, note that I am not a registered Republican, I didn't vote Republican this year or 4 years ago and I generally view the Republican party to be just as incompetent, crooked and generally bad-for-America as the Democratic party. Both are raping America. One uses a condom. You can argue over who is wearing it alllllll you want.

is one example how Clinton didn't really do much good in his 2nd term, not that he could given the divided government we had then, too.

The foundational imbalance in this economy is that the top 10% own ~90% of this country and the top 5% is clearing ONE THIRD of the national income. This is just killing velocity within the paycheck economy, and we used the housing bubble and now the government bubble to keep things from blowing up completely.

I don't have any particular advice to give Obama. Things are just too fucked all around, really. People are just going to have to learn the hard way.

Agreed.

Also, I don't define the current crop of Republicans as "conservative", or at least not in the political sense. That does the word a disservice. Neo-conservative probably fits better. I don't see any way that a real fiscal conservative could ever align with the Republicans. They do seem to take the prize for pandering to the religious ultra-conservative fringe though.

As a middle / upper-middle class guy, I can't really agree with either party. The Dems want to take my money and give it to hordes of people that didn't earn it. The Republicans want to take my money and give it to a bunch of crooked assholes that certainly don't need it. Gross simplification here, sure. I can see the appeal of the Dems from a utilitarian point of view, but 2 rights don't make a wrong, etc.

I don't consider you a "libtard" since you seem to be capable of critical thought. "Libtard" is reserved for the left-leaning equivalent of the Neo-Con that defends their party at every chance because they either have a big ego in the way, or insufficient mental capacity to see that letting an arbitrary political label define how they think is a bad idea. Usually a mix of both.

shows PER-WORKER real gdp (2005) dollars is over $100,000 now, double that of the 1950s. Yet this nation is totally broke.

How can that be?

It's the rents that are sucking the masses dry. Land is the major rent-tap on the masses, just look at how Iwog's operation is working, he's got them coming and going, sucking their money via housing rents and then finishing them off profiting from rent-seeking in the artificial scarcity and ginned up bullshit of the legal sector.

I'll tell you what -- the minimum wage schlubs in my city have created more wealth for this nation than a thousand Mitt Romneys.

Despite exploding productivity (compare the education of the average worker today vs. 30 years ago) wages aren't increasing. Most of our problem is that too few are being ludicrously over-"rewarded" vs. what they contribute.

The place to start is with hedge fund management commissions being taxed at cap gains. By current logic, Realtors should also be paying cap gains instead of having their commissions taxed as Salary/Wages.

Was looking at homes in Costa Mesa, CA last weekend. I chickened out from buying a home there about a year and a half ago. Now the same piece of $hit is 15% more. Should I have listened to the Mortgage broker then who said that there is only one way out of this mess: INFLATION? All I wanted was to be able to see enough appreciation to get out if needed. Opportunity missed.

The solution is INFLATION. It is the best solution for defaulting on debt that cant be paid back.

Think about it. The government could have and should have let the housing market crash and should have gotten rid of FHA, VA and other programs. Have normal interest rates. That would have created affordable housing and promoted savings for people who dont have 20% down.

The MACHINE of housing opted for INFLATION. Too many people are under water and inflation will bring them back afloat.

Idiots are living in nice homes by gambling with other peoples money at all levels and the downside for them is bad credit for a couple years if they time the market wrong. But if I see how I live and how they are living I realize they are smart and I am dumb.

But you have to realize the RISK to the loan institutions IS much less than 1920's. Today there is a huge safety net for these loan institutions. Housing CANNOT go down drastically because the ruling money controllers will not let it. So, you could even pay people to take loans if you know you will always be refunded for any losses (Japan!). (and those FDA rural loans!)

1900's. Loaning money might mean you don't get paid back. You might get stuck with a worth much less house.
2000's. Loaning money means no risk or just some risk of administrative headache as Uncle Sam or Uncle FrED will always cut you a check. Or your favorite uncle depending on your country.

When the risk was there, the person had to bear more of the risk. Put down more. Now that the risk has been absorbed/transferred to a governing/ruling authority, the person can put down much less. The loaner will not in either case be able to absorb more risk. The loaner has to have that risk underwritten by the government/rulling authority to agree to it/pass it through.

What is hugely missing in housing price analysis is an understanding of this. The market of 2000-2007 can NOT be compared to the market of today. The two are an apple and an orange. The market of today has an enormous safety net for loaners. Its a whole new system. The prices of housing today are priced in that system. These are not the same houses in terms of a financial investment as they were 10 years ago or 100 years ago.

BTW, Mumbai was probably heavily underpriced. With India wages about the same as USA wages for the same skilll level, the housing there should be about the same prices as other cities in the world.

Mumbai has a per capita income of less than $10000. Even the poorest cities in the us are 3 to 4 times that.

You can't compare Per Capita agrarian societies to urban societies. E.g. Congo is like $250 per capita. Clearly cash is not a major part of their everyday living. The challenge for India is it really is a third world country with a first world country inside of it. The housing prices in 1st world areas are comparable to the 1st world elsewhere in teh world. So are the pay. E.g. company I worked for before this one was paying $31/hr for India workers with no experience and also $29.99 or less/hr for American workers with 3-5 years experience. Computer programmers. All degreed. Americans typically also had a Masters degree, albeit IS or such.

You can't compare Per Capita agrarian societies to urban societies. E.g. Congo is like $250 per capita. Clearly cash is not a major part of their everyday living. The challenge for India is it really is a third world country with a first world country inside of it. The housing prices in 1st world areas are comparable to the 1st world elsewhere in teh world. So are the pay. E.g. company I worked for before this one was paying $31/hr for India workers with no experience and also $29.99 or less/hr for American workers with 3-5 years experience. Computer programmers. All degreed. Americans typically also had a Masters degree, albeit IS or such.

First of all, $31/hr. isn't anywhere close to what a degreed "programmer" in a big US city makes. Interns make more than that.

Second of all, $31 an hour isn't anywhere remotely close to enough to be buying all of those $million+ apartments.

But the fact of the matter is that just because some people make a lot more money than other people doesn't mean much. Averages matter. Housing costs can only be as high as people can possibly afford. You can pack a multi-generational family into a one room hovel, but they still have to be able to pay for that hovel somehow.

Mumbai has a huge unsustainable bubble that makes silicon valley prices look downright rational. Neither incomes nor population growth align with the increase in costs over the last decade. All of those guys working in the US who think that they're "investing" in apartments back home are going to lose their asses.